How to Sell Your Business, page 21

Working With Investment Bankers

Top-flight investment bankers (such as Morgan Stanley, Goldman Sachs, etc.) want a success fee of at least $1 million on any transaction they handle to make it worth their while. This makes it not worthwhile to take a transaction valued at much less than $100 million to these investment bankers. (Even a $100 million transaction will be looked at as an ugly stepchild unless the investment banker sees future relationship-based revenue coming out of having engineered the transaction.)

Like their broker cousins further down the intermediary totem pole, an investment banker may try to place an acquisition privately using their Rolodex. But the most common ways things progress is for the investment banker to arrange a modified auction.

In this two-stage auction process, the investment banker helps prepare a “Book,” or Offering Memorandum. The Book is circulated to likely acquirers, who are invited to submit non-binding “Expressions of Interest.” These Expressions of Interest include an indication of the price the purchaser is willing to pay.

In consultation with the seller, the investment banker prepares a short list of acquirers based primarily on the price they have indicated they are willing to pay. Other factors, such as the perceived likelihood of the acquirer being able to close the deal, also come into play.

Those selected are invited to participate in the second round of the auction. Usually this means that the acquirer is given the ability to do limited due diligence reviews (the circumstances surrounding this review are tightly controlled). Binding, final bids are then solicited from all participants in the second stage of the auction.

This process for selling a sizable business has been developed over the years, and it works well. If you are in the (fortunate) position of having a substantial business for sale, you should interview all available investment bankers to see whom you are comfortable with. Try to talk to whom ever will actually be handling your sale—often these are not the Managing Director whose job is to bring in business.

Accountants and Lawyers

Accountants and lawyers are indispensable members of the team that will help you sell your business. But not all of these professionals are equal, and not all of them have experience dealing with the issues that arise when you sell your business. This is a good time to scrutinize your accountant and lawyer to make sure that you have the relationships that will help to facilitate your transaction.

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